Yet Another Bank Bail-Out
James Meek
You could be forgiven for not noticing it, but the new British government has just been forced to do what the old British government was forced to do: bail out Britain’s banks. The bail-out of Ireland marks a new stage in the privatisation of government by the financial system. Two governments, the British and the Irish, have been effectively taken over by a venal banking network which, using ordinary savers and productive businesses as hostages, forces the state to cough up whatever sums are required to save it from the consequences of its own greed and idiocy.
Even before coming to power the dominant Conservative side of Britain’s governing coalition was making Gordon Brown the scapegoat for the UK being broke, maxed out, skint, and claiming that only by savage cuts in state spending could Britain hope to salvage some vestige of public services among the ruins. Why, then, is this same British government about to lend Ireland, a member of the Eurozone, some £7 billion to see it through its current financial difficulties?
The answer is straightforward, although you wouldn’t think so from the way the story is being reported. The Conservatives have been remarkably successful in promoting a false version of the events of the past couple of years – that excessive government spending is the cause of the present mess.
The fact that the first great Eurozone financial crisis, in Greece, really was caused by crazily loose public purse strings has helped spread the lie. But the truth is that Britain and Ireland, like Iceland and, indeed, Spain, are in trouble not because these governments spent and borrowed too much but because households, businesses and banks spent, borrowed and lent much too much.
What is being presented as a loan by the British government to the Irish government is, in fact, a loan by the British government to the remnants of Ireland's commercial banks, which are melting down. And the reason the British government is lending to the Irish banking system is because British commercial banks lent so much money to Ireland in the boom years. British banks hold less than £10 billion worth of Irish government bonds. But they hold something like £130 billion worth of other Irish debt – property loans, business loans and so on. George Osborne is not, as he claimed, helping Ireland because it is ‘a friend in need'. He is to all intents and purposes bailing out British banks.
It has been depressingly easy for the Cameron administration to hypnotise the British public into forgetting that our current economic plight is a result of reckless lending by the country’s banks rather than reckless Labour borrowing. £7 billion, the government must feel, is a small price to pay to avoid another British banking crisis, and to avoid the country waking up and remembering that we are much more like Iceland than we ever were like Greece.
Comments
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22 November 2010
at
11:17am
DTK Molise
says:
Excellent blog James. It seems in the light of this post, and the excellent article by the ever reliable Ross McKibbin in the latest issue, that the LRB is the only publication that is challenging the official narrative of the Con-Lib government. It aways amazes me, but never surprises me, just how feeble the UK press is at challenging a sitting government regardless of its hue. Whether Labour over Iraq or the Tories over the deficit the media are the first in line to trumpet misinformation provided by the government.
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22 November 2010
at
4:23pm
A.J.P. Crown
says:
Larry Elliott, economics editor of the Guardian, gives almost exactly the same explanation as this one.
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22 November 2010
at
4:32pm
ski
says:
I would broadly agree with your post.
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22 November 2010
at
4:34pm
ski
says:
The sentence in the second last paragraph should of course read "Ahern was inarticulate".
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23 November 2010
at
4:29pm
semitone
says:
@
ski
Ski, you're right of course but a couple of quibbles: I think "make the boom boomier" is refreshingly articulate. I know exactly what he means, and the phrase also captures some of the craziness and excitement you feel when your house is making more money than you are.
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23 November 2010
at
4:52pm
A.J.P. Crown
says:
@
semitone
Ever since 1929, even the US Government has said it's the state's job to regulate the commercial banks.
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23 November 2010
at
6:50pm
brianlindberg
says:
You could be forgiven for not noticing it (being Euro-centric, I suppose), but there are certainly at least three governments which are now publicly revealed to have been taken over by a "venal banking network". How could you fail to give the credit which is due the United States in all of this? As usual we lead the world, and certainly this is the case when it come to financial skulduggery. With the "fall" of Communism/Socialism, those chest-thumping capitalist pigs immediately began to play their R card: Rapacious.
Read moreNo one has managed to explain to me how the "credit crunch" was somehow miraculously changed from being a banking crisis caused by banks taking outrageous risks to a crisis of public expenditure. One minute it was the former and seemingly overnight the BBC, The Guardian, The Times, The Mail, and the whole media establishment, have been providing air time and justification for the Tories incredibly ideological version of events with little or no critical analysis.
Surely this amazing process is a perfect case study for someone to analyse how the political agenda is built upon an amazingly subtle propaganda system that looks and feels like it provides "freedom of expression" but is, in reality, completely controlled by a form of silent or tacit agreement from the financial, political and media elites.
I am still waiting for someone to explain quite how this all happened.
I would point out that in Ireland's case no fancy financial instruments were at the root of the problem. It was not a shadow banking system, of CDRs, CDOs, and other menacing acronyms, which pulled Ireland into the abyss. Just a plain old ordinary banking system that took deposits, foreign short money, and loaned long (and hard!) into a huge, terrifying property bubble. The banks were reckless throughout, and when the edifice began to collapse, they were outright sinister. They engaged in what can only be called corruption by attempting to hide the holes in their balance sheets. They lied to the government. The Irish government got a call one night to say the banks were about to collapse the next day, and the government decided to guarantee everything - from deposits to subordinary bonds. It took a little time for the size of the hold in the banks' balance sheet to emerge fully and when it did, it was shocking in its extent and, because they were now inextricably linked with the sovereign, the country was brought down as well.
But the bulk of the responsibility for the problem lies with the state - which failed to regulate the banks and, worse, which adopted, even against advice, measures which inflated the property bubble further. The government rode the wave of the boom, never allowing itself to contemplate the inevitable end to all such booms. The then Taoiseach in about 2006, Bertie Ahern, in response to an economist who said that Ireland's property prices were clearly following a frightening trajectory, invited nay sayers to commit suicide. Ahern was articulate (he once said they were adopting policies to make the boom boomier) his phrase was poorly chosen, but the mindset it revealed was telling. If Ahern was bad at connecting words, he was good at connecting with people, and among his network of chums were many of the country's largest developers. Indeed the nexus between his party, Fianna Fáil, builders, and bankers, lay at the heart of Ireland's catastrophe.
To finish, Ireland's problem is not merely its banks: its fiscal position is madly out of kilter. The government collects about 32billion in taxes and spends about 50. Clearly that in itself is a huge problem. When enormous funds required to 'fix' the banking system are added to that, it is clear that the country is in a dire position.
But this is the second time in a week I've read on this site someone blaming bad behaviour on the cops rather than the robbers. Why is it "mostly" Obama's fault that Netanyahu builds illegal settlements? Why is it mostly the state's fault that the banks went broke? If I do something stupid, harmful, perverse or cruel, and yet it is legal, is it the state's fault or mine?
Why do we exonerate these people (bankers, Israeli politicians) for their antisocial and disastrous behaviour? Why is blaming the government the first resort of both the liberal lrb-reading left and the tea-partiers?
What they are about to learn is that the "oppressed masses" still hold an R card too: Revolution.